Canada’s economic growth will be the slowest among Group of 20 countries outside Europe as it grapples with a cooling housing market and as policy makers rein in deficits, according to the International Monetary Fund.

The outlook for Canada’s economy has weakened significantly in the past few months, falling further behind the United States and still below many other industrialized nations.

“The main challenge for Canada’s policy-makers is to support growth in the short term, while reducing the vulnerabilities that may arise from external shocks and domestic imbalances,” the International Monetary Fund said in its World Economic Outlook on Tuesday.

“High household debt and continued moderation of the housing sector will restrain domestic demand.”

Canada’s growth will ease to 1.5% this year from 1.8% in 2012. In 2014, however, the economy could see a 2.4% pickup, the Washington-based global lender said.

Even so, we are now playing catch-up with the United States, our main source of trade revenue, whose economy the IMF predicts will advance 1.9% in 2013 and 3% next year.

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We will need to rely on that stronger growth south of the border to lift this country’s performance.

The IMF said risks to its Canadian forecast are “tilted to the downside,” given the still-fragile fiscal situation in the U.S., along with ongoing financial and debt woes in Europe. Weaker prices for Canadian commodities also pose a threat to growth, it said.

The IMF said fiscal consolidation is needed to absorb future shocks to the economy. But the government should be prepared to provide additional spending to promote growth and social programs when needed.

This runs counter to the Conservative government’s austerity focus — a policy of program spending cuts and a promise to balance the federal budget by 2015.

“I believe the IMF has seen the light, to some extent, that austerity — especially in Europe — had become self-defeating in some countries that were trying to consolidate fiscal finances much too rapidly and it was seen to be counter-productive,” said Douglas Porter, chief economist at BMO Capital Markets.

If Canada is to pick up its pace of growth, though, the economy will require a seismic shift away from its dependence on households.

With consumer debt at record-high levels and the housing market showing signs of cooling, Canada will need to rely more on business investment and stronger exports to pull the economy out of its post-recession slowdown.

Many companies have been hesitant to expand their markets in an uncertain global economy, and that —along with weak domestic demand — has hampered plans by the Bank of Canada to raise its trendsetting interest rate, which has been at just 1% since September 2010.

In its report, the IMF also looked at the central bank’s current monetary policy, saying it was “appropriately accommodative,” but added that “the monetary tightening cycle should be delayed until growth strengthens again.”

Bank governor Mark Carney is widely expected to again delay a move on rates Wednesday, when policy-makers also issue their latest economic outlook in the closely watched quarterly Monetary Policy Report.

“To me, the only question is whether they totally toss overboard the tightening basis,” Mr. Porter said. “I would give about a 30% chance that they do . . . and just go completely neutral.”

Meanwhile, in its report, the IMF said Canada’s output this year will lag the 8% growth the fund expects from China, as well as the 3.4% advance forecast for Russia. Mexico is seen growing at pace of 3.4% in 2013, while Brazil could notch up 3% expansion. For South Africa, growth should reach 2.8% this year and 3.3% in 2014.

On the downside, the IMF expects the 17-nation eurozone — including France, Italy and Spain — to continue with the negative growth, going from 0.6% retrenchment last year to a decline of 0.3% in 2013 before taking a 1.1% positive turn next year. While Germany is part of the group, the IMF is forecasting growth there of 0.6% this year and 1.5% in 2014.